5/02/2010 @ 9:45PM

The Buffett-Blankfein Alliance

Goldman Sachs
shares should pop Monday morning on the unambiguous support of Americas most renowned investor, Warren Buffett. It’s not just the
Berkshire Hathaway
chairman talking his book. It’s Buffett talking like the analyst and portfolio manager he was taught to be by the great Benjamin Graham in the middle of the last century, spotting value and sticking his dollars behind it. Buffetts throngs of adoring value investors will feel compelled to honor the oracle and pick a prudent level to buy into Goldman, or to buy more shares.

According to a Belgian fund manager who worked for seven years for Goldman in London, and who just arrived here in Pasadena for the Value Investing Congress this week,
Goldman Sachs
has an intrinsic book value of $111 a share and that book value should rise at least to $132 a share over the next six months unless disaster strikes. Any price that includes only a small premium over book value should be a magnet for sophisticated investors, like those who admire and emulate Buffett.

Goldmans image is in the process of a rescue mission undertaken by chairman and CEO
Lloyd
Blankfein
Lloyd Blankfein
, who received a very public and complete expression of 100% backing from the Oracle of Omaha this past weekend. That support is incredibly significant to Goldmans dealings with the SEC and Justice Department, since Buffetts good graces count for a lot in Democratic Washington. It was
Warren
Buffett
Warren Buffett
, largest shareholder in Salomon Brothers back in the early 1990s, who saved the firm from almost certain criminal indictment and death by his appeal to Congress for leniency.

The embattled Blankfein is helping his and Goldmans case by getting on network and cable television, energetically defending the reputation of the firm and promising to review all of its business practices to ensure that it interacts with the public in a more responsible fashion. Blankfein recognizes that the public does not know him or understand what
Goldman Sachs
does and he is engaged in a very aggressive program of public appearances to ameliorate the situation. Blankfeins feisty and articulate nature was especially successful on Fareed Zakarias highly respected Sunday program on CNN.

“We are going through all our processes,” Blankfein said over the weekend. “We cant exist in the same state, we have to look at all the conflicts.”

Goldman and its headman need to make the case that net-net the bank did not make a fortune going short mortgage backed bonds in 2007 and 2008. I cant believe that. Blankfein would be stupid enough to lie about the $1.7 billion loss he claims the firm took on residential mortgages in 2008. To stem the SEC civil lawsuit and convince Justice not to bring a criminal case, Blankfein needs all the candor he can muster to give public testimony that will convince the public, and therefore the Obama administration, that the firm is not an evil ogre. Where he fell down on CNN is an inability to explain away the unfairness of a hedge fund manager picking terrible mortgages to back a security being sold to a German bank. Even though the German bank had been a customer for many CDOs previously–on which it also lost a pile of money.

Last Friday, Blankfein properly kept interrupting commentator Charlie Rose who had been fed biased emotional criticisms from his anti-Goldman sources. Why expect TV pundits to understand the intricacies of Wall Street? Thats why Blankfein has to keep up the pressure, becoming the acceptable image of
Goldman Sachs
, while furiously acting to correct any conflicts of interest that dont fit the smell test. Hes got plenty of work to do.

Thats Blankfeins major problem. The world–from Charlie Rose to the Senate oversight committee to a legion of nasty bloggers all trying to outdo each other–does not really understand
Goldman Sachs
and what it does every day. The reason is that Goldman has never cared to tell them. All that has changed. Goldman has to connect with Aunt Sadie and if it can institute some reforms, like making it clear to buyers if sellers have a narrow selfish prejudice, that should be transparent.

Its a challenge. Goldman is on the cusp of a gradual move toward total transparency in its hugely profitable operations. We all want to know which mortgage desks made how much money in residential mortgages and which ones lost money because they were wrong on the market. Show us the numbers. Spell out their meaning. It would go a long way to demystify all the noisy wrangling and misinformation bandied about out there.